Second part of exclusive article for Telcos, appeared in Teletimes International July 2012 issue.
ITU estimates 1.2 billion of the world’s 5.8 billion mobile subscribers were active mobile broadband users at the end of 2011. At 20% smartphone penetration, the business opportunity for cloud services to penetrate 1.2 billion subscribers is clear, with e-mail, unified communications, collaboration and storage type services being the most obvious. What many telecom operators have yet to recognise is the opportunity that lies with the 4.6 billion mobile users worldwide who do not have access to latest technology devices. Telcos should look to cloud service providers’ expertise in cloud enablement services for feature phones. Strategic partnerships with players that can assist the telco in quickly monetising the cloud for low ARPU, pre-paid subscribers are key. The benefits of partnership are clear: faster conversion from feature phone to smartphone and all the benefits of higher ARPU.
1. Positive Market Dynamics
In the past five years, smartphones have grown in market share as subscribers purchase them for both business and personal communications. As voice ARPUs continue to decline and telecom operators seek data solutions to compensate for revenue losses, smartphone has been hailed as the solution encouraging higher spend.
Gartner offer forecasts on the sale of mobile handsets by technology. Their analysis implies that whereas 3G phones are indeed by far the most widely bought device globally in 2012, 2.5G devices remain very relevant in Eastern Europe, the Middle East and Africa, for at least another three years.
Despite just 20% worldwide smartphone penetration, analysts have focused heavily on developed markets where latest technology devices are driving data growth and recovering ARPU trends. Telecom operators in emerging markets and others with majority pre-paid subscribers are looking to their 3G roll-outs and GDP growth in great anticipation. The opportunity to penetrate with a low-cost smart device that will stem voice ARPU decline and lead back to revenue growth is certainly worth striving towards. Whilst penetration varies from region to region and country to country, market analysts also point towards the eventual demise of the feature phone and the proliferation of smartphones. The question is what happens in the interim?
2. The not so obvious opportunity
At the end of 2011, there were 5.8 billion mobile subscribers in the world, 80% of which were not users of a smartphone device. Gartner forecast that 2.5G devices will account for 37%, 29% and 22% of all new handset sales in 2012, 2013 and 2014 respectively, emphasising the continued relevance of feature phones in several markets.
A recent survey by Analysys Mason on ‘connected consumers’ in seven countries, describes smartphone usage as an occurrence that is “disrupting the mobile voice market.” Yet, according to their findings, 31% of regular users of mobile content and apps do not own a smartphone. Such subscribers consume content on feature phones that may have a less user-friendly interface, smaller screen, or lack a qwerty keypad, making the whole experience far more cumbersome than with a smartphone; yet they persevere, with younger mobile subscribers most likely to use mobile content via a feature phone. In Indonesia, where average monthly ARPUs are about US$2.7, 70% of teenagers reportedly own a mobile phone. This immediately points to an opportunity in enabling popular mobile content and apps for feature phones, with games and social networking being the two obvious categories.
India is the 3rd largest consumer of Facebook in the world, reporting 45.8 million users, 20.5% growth in the past six months, albeit at just 4% population penetration. Indonesia, the 4th largest consumer, reports 42.3 million users, equating to 17.4% penetration of its population. Both markets are characterised by low fixed-line internet penetration to the home, a majority of pre-paid mobile subscriptions, frequent top-ups, average monthly ARPU levels of below US$5 and a very young, growing population.
Just as mobile games have been one constant area of growth in mobile content, so social networking is becoming more and more relevant. If social networking is not available through fixed-line connections to the home, then (young) users will seek alternative ways to access their favourite sites. Telecom operators can no longer afford to ignore their feature phone subscribers for three key reasons:
Telecom operators will see that, once able to access their favourite social networking sites, feature phone users will quickly tire of the cumbersomeness of their device and thus consider upgrading to a smartphone (even a low cost one) that much sooner. As telecom operators report that adoption of smartphones immediately increases ARPU by at least 10%, with Turkcell reporting a phenomenal 500%, the facilitation of such is imperative. In summary therefore, the opportunity lies in maximising revenues from feature phones while they are still relevant, at the same time encouraging the faster adoption of smartphones as they become more affordable.
Communication service providers should remember that cloud computing can – and must – defend the core: broadband.
The fastest, most efficient and least costly method to tap into the significant opportunity of services and apps for feature phone can only be the cloud. As Informa Telecoms & Media note, the cloud has the ability to help telecom operators further capitalise on their investments in broadband, thus defending their very core. The cloud offers flexibility, scalability and limited infrastructure costs. However, telecom operators only have a limited time during which feature phones will remain relevant and thus, fast commercial deployment is absolutely essential.
3. Partnerships – The business rationale
Telecom operators face challenges in the cost and time it takes to deploy a bespoke technology platform accommodating value added services. Additional impediments to fast commercial success lie in the 9-18 months of internal preparation for commercial launch for any such new service. As many telecom operators may not be able to develop their own new services due to a lack of the requisite, budget, skills and other resources, so technology partners have an important part to play in enabling operators to successfully deploy new services to their subscriber base and in their go-to-market efforts.
Given the current economic downturn in many countries, telecom operators may unlikely offer the same focus or budget as in previous years, for new services. Even where a budget is made available, it may be vulnerable to being withdrawn if the new service does not show early success. Telecom operators therefore need to demonstrate quick wins if they are to help build momentum in the value added services space. Partnering, rather than internal development, is certainly the quicker, more efficient route to market.
[Communication Service Providers] should look to take advantage of vendors’ expertise by utilizing their cloud enablement services or establishing go-to-market partnerships in order to quickly establish themselves in the market.
Cloud enablers such as CE On-Demand help telecom operators and system integrators deploy their cloud strategies effectively, but more importantly, with fast commercial launch and immediate results. By utilising the enormous capabilities of the cloud, coupled with their specialised expertise, cloud enablers offer their telecom partners a variety of solutions with which to improve data ARPU from their 2.5G subscribers, with just two examples being the availability of social networking feeds and e-mail on the move. While access to such applications has to-date only been available on more advanced mobile devices, the cloud paves the way to deliver basic smartphone functionality to most 2.5G handsets, thus expediting the much-needed upgrade to smartphone.
Telecom operators are uniquely positioned not only as trusted IT partner to their business customers, but also as one-stop-shop entertainment centre for their vast consumer base. Partnership with cloud enablers offers the advantage of tried-and-tested solutions with fast deployment, even when bespoke configuration is required. The right cloud enabler has both the data integration solutions and the expertise to bundle and market white-labelled cloud solutions to cover the needs of more than just the most affluent segment of an operator’s subscriber base.
 “Mobile Devices Forecast 2008-2015” Gartner, June 2011
 “Connected Consumer Survey” Analysys Mason, Feb 2012
 “Mobile Phone Penetration in Indonesia Triples in Five Years” Neilsen Research, Feb 2011
 “Connected Consumer Survey” Analysys Mason, Feb 2012
To see the original article on Teletimes International, please click here.
About Viktor Kovács
Viktor is co-founder and Chief Commercial Officer of CE On-Demand (www.ceondemand.com), a company active in cloud services enablement since 2008. CE On-Demand creates cloud providers by assisting white-label partners and direct end-users to realise and implement their cloud strategies. Since inception, CE On-Demand has supported 27 partners in deploying their cloud strategy, 17 of which have been telecom operators. The Company’s footprint spans 15 countries across Europe. Viktor is a board member of EuroCloud Hungary, the pan-European cloud computing association; he also enjoys sharing his invaluable experience by speaking at cloud and telecom conferences. Viktor’s expertise in the cloud is unprecedented, especially in emerging markets, where the sector has been slower to penetrate and few innovative cloud companies have emerged. Prior to CE On-Demand, Viktor held executive roles with EDS Corporation, Octel Communications Corporation (acquired by Lucent), Portal Software (acquired by Oracle) and Cisco, and thus benefits from more than 20 years of experience in the ICT sector, both in the US and Europe. Viktor may be contacted directly on firstname.lastname@example.org and followed on Twitter at @VKovacs_cloud.
About Sophie Papasavva
Sophie Papasavva is a Partner at EM Finance Consulting (“EMFC”), a borrower’s side advisor that bridges the gap between corporates and the finance community. EMFC translates funding needs into financeable propositions and navigates borrowers through the entire loan process. Prior to establishing EMFC, Sophie was a loan banker for 12 years, first as telecoms, media & technology relationship manager and later in loan syndications and sales, where she gained experience in multiple sectors such as oil & gas, mining, infrastructure, agribusiness and others. Sophie has originated, structured, executed, sold, restructured and syndicated loan financings ranging from simple bespoke bilaterals to complex multi-billion dollar, multi-currency syndicated transactions. Her expertise lies in arranging structured, bespoke financings for corporate borrowers operating in the emerging markets. Sophie may be contacted directly at email@example.com and followed on Twitter at @Sophie_EMFC.